Intergovernmental Fiscal Transfers as Development Finance

High-Level Policy Dialogue of the Malaga Global Coalition for Municipal Finance

On October 5-6, 2023, hosted by the Ayuntamiento de Malaga together with UNCDF, UCLG, FMDV, the Third Malaga Conference brought together diverse actors, including mayors, government officials, development practitioners, capital market authorities and commercial banks who are at the forefront of designing and implementing the five elements of the Malaga Coalition agenda. The Malaga Coalition policy agenda is proposed as a concrete path to developing the required financial ecosystem, which includes five building blocks: (1) intergovernmental fiscal transfers; (2) own-source revenues; (3) domestic capital markets; (4) city-friendly investment funds; and (5) guarantee funds for cities.

The conference’s first session addressed the role of intergovernmental fiscal transfers as development finance. Intergovernmental fiscal transfers (IGFTs) from the central to subnational governments are the most important source of revenue for subnational governments in virtually all countries. The role of IGFTs in providing public finances to the subnational government level is critical in rich and poor countries, as well as for both urban as well as rural local governments.

Globally, intergovernmental fiscal transfers (IGFTs) constitute more than half of total subnational government revenue, which illustrates its significance for local governments and the associated development implications. Well-designed IGFTs can build trust in local governments, and shift from vicious cycles (deteriorating local governance, finance, and service delivery), to virtuous ones (improvements in governance, finance and service delivery performance). There is untapped potential to further improve and strengthen the role of intergovernmental transfers.

This roundtable session—which was co-hosted by UNCDF, UCLG, FMDV and Local Public Sector Alliance—illustrated the role of intergovernmental fiscal transfers in funding localized development, featuring panelists who shared experiences on challenges and success stories.

The roundtable was moderated by Dr. Paul Smoke (Professor of Public Finance and Planning, New York University) and included presentations from Jesper Steffensen (UNCDF) and Jamie Boex (Executive Director, LPSA), as well as contributions from Jane Kiringai (Office of the Deputy President and former Chair, Kenya Commission on Revenue Allocation); Dr. Khimlal Devkota (Member of Parliament, Nepal); Ing. Juan Cristobal Lloret (Prefect of the Azuay Province, representative of the Consortium of Provincial Governments of Ecuador, CONGOPE) and Sophie De Coninck (Global Facility Manager, LoCAL, UNCDF).

Videos of detailed background presentations are available online on intergovernmental fiscal transfers in Kenya by Dr. Jane Kiringai and intergovernmental fiscal transfers in Ecuador by Prefect Juan Cristobal Lloret (in Spanish and English).

Follow the link for the full Third Malaga Conference Program.